Merrill sells $75 million tied to gold and silver index; Morgan Stanley prices $73.8 million based on Asian indexes

By LLuvia Mares

New York, Oct. 3 - With gold still a hot topic in the market, Merrill Lynch & Co. hit the jackpot after pricing $75 million Accelerated Return Notes due Dec. 3, 2008 linked to the PHLX Gold and Silver Sector index, according to a 424B3 filing with the Securities and Exchange Commission.

At maturity, the notes pay par plus triple any gain on the index, capped at 32.10%. Investors have full exposure to any decline.

The index is designed to measure the performance of 16 companies involved in the gold and silver mining industry, or companies whose revenues consist of royalty income from gold and silver mining operations.

Merrill Lynch & Co. is the underwriter.

Merrill's large deal comes as previous metals are attracting attention in the structured products market.

On Tuesday, Barclays Bank plc announced plans to issue zero-coupon principal-protected notes due Oct. 31, 2012 linked to gold. The payout at maturity will be par plus any gain. Investors will receive at least par.

The notes are expected to price on Oct. 26 via agent Barclays Capital.

On Sept. 27, Lehman Brothers Holdings Inc. announced plans for two deals linked to gold.

The bank intends to sell one-year capped participation notes that will pay par plus 1.5 times any positive return on the metal, capped at a maximum payout of par plus 9%. The payout will be par if gold loses up to 10%. Investors will lose 1% for each 1% that gold declines beyond 10%.

The other deal is two-year capped participation notes offering par plus double any positive return on gold, capped at a maximum payout of par plus 18%. The payout will be par if gold loses up to 10%. Investors will lose 1% for each 1% that gold declines beyond 10%.

Lehman Brothers Inc. will be the underwriter for both.

On Sept. 25, Lehman priced $7.22 million 0% autocallable optimization securities with contingent protection due March 30, 2009 linked to the Amex Gold BUGS index via UBS Financial Services Inc. and Lehman Brothers Inc.

The notes will be automatically called if the index shows a gain on Dec. 26, March 25, 2008, June 25, 2008, Sept. 25, 2008, Dec. 26, 2008 and March 25, 2009.

If the notes are called, the redemption amount will be par plus 6.73% if called on Dec. 26, par plus 13.45% if called on March 25, 2008, par plus 20.18% if called on June 25, 2008, par plus 26.90% if called on Sept. 25, 2008, par plus 33.63% if called on Dec. 26, 2008 and par plus 40.35% if called on March 25, 2009.

If the notes are not called, the payout at maturity will be par unless the index closes at or below the contingent protection level, 80% of the initial level, during the life of the notes and finishes below the initial index level, in which case investors will share in any losses.

Morgan Stanley prices $73.8 million

Another company bringing in a big deal Wednesday was Morgan Stanley, which priced a $73.8 million issue of 0% buffered return enhanced notes due Oct. 10, 2008 linked to a basket of Asian equity indexes via agent JPMorgan.

The basket contains the Amex Hong Kong 30 index with a 15.3% weight, the FTSE/Xinhua China 25 index with a 26.8% weight, the Kospi 200 index with a 28.5% weight, the MSCI Taiwan index with a 21% weight and the MSCI Singapore index with an 8.4% weight.

The payout at maturity is par plus double any basket gain, capped at a 23.8% maximum return.

If the basket falls up to 10%, the payout will be par. Beyond a 10% drop, investors will lose 1.1111% for each 1% loss in the basket.

Lehman prices one-month reverse exchangeables

An interesting and rare move for Lehman Brothers Holdings Inc. was an offering of reverse exchangeables with a maturity of just one month.

The $750,000 notes mature on Nov. 7 and are linked to the common stock of Apple, Inc.

The securities will pay 1.2125% for an annualized rate of 14.55%.

The payout at maturity, in addition to interest, will be par unless Apple stock falls by 15% or more during the life of the notes and finishes below the initial share price, in which case the payout will be a number of Apple shares equal to $1,000 divided by the initial share price or, at Lehman's option, the equivalent cash value.

Lehman Brothers Inc. is the underwriter.

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